Israel has been waging war across multiple Middle Eastern countries for three years. Under such circumstances, one would naturally expect the economy to face a deep crisis; however, the reality is quite different. By various indicators, Israel’s economy is currently thriving. Yet, amidst this economic success, voters remain concerned about the rising cost of living.
Elections for the Knesset, Israel’s parliament, are scheduled for this month. National security has taken center stage in the campaign leading up to the October 27 vote. Both Prime Minister Benjamin Netanyahu—leader of the right-wing Likud party—and retired General Gadi Eisenkot—leader of the centrist Yeshar party—claim to be the most capable of ensuring Israel’s security.
Following the Hamas-led attack on Israel on October 7, 2023, and the subsequent outbreak of war in Gaza, the country’s economic momentum slowed significantly. However, Israel has since rebounded, becoming one of the fastest-growing economies among developed nations in recent years.
According to government statistics, Israel’s Gross Domestic Product (GDP) grew by 1 percent in 2024. This figure rose to 2.9 percent for 2025, with a growth rate of 3.2 percent recorded in the first six months of the current year.
The Bank of Israel has forecast growth rates of 4 percent for 2026 and 5.5 percent for 2027. These projections far exceed those for major economies such as the United States, the United Kingdom, France, Canada, and Japan.
Over the past three years, the value of the Israeli shekel has appreciated against the US dollar. In May, the currency’s exchange rate reached a 30-year high. Concurrently, the country’s stock market has experienced a significant surge, with the benchmark TA-125 index rising by more than 110 percent.
Meanwhile, Israel’s unemployment rate stands at 2.8 percent, and inflation is at 1.5 percent. Despite these positive overall economic indicators, the cost of living remains a major concern for the general public. Growth Driven by the Tech Sector
The technology sector is playing a pivotal role in the recovery of Israel’s economy. Despite ongoing conflicts across Gaza, Lebanon, Syria, Iraq, Iran, and Yemen, the country’s tech sector has remained relatively insulated from the impact of these wars. Investment in the sector has surged alongside the rapid global adoption of artificial intelligence (AI).
Israel has attracted record levels of investment in its technology sector, even amidst the wartime conditions that have prevailed since October 2023. This sector accounts for approximately one-fifth of the country’s economic activity.
Last year, foreign direct investment in Israel reached $26.2 billion—a 78% increase compared to the previous year. Acquisitions by US tech giants Alphabet and Palo Alto Networks—specifically of the Israeli cybersecurity firms Wiz and CyberArk—played a major role in this investment surge; both deals were record-breaking in value.
Foreign investment has continued into the current year. According to government statistics, foreign investment totaled $14.1 billion during the first three months (January–March), marking a record for a single quarter.
Beyond the global expansion of AI, Israel’s tech sector is benefiting from close ties to the country’s defense industry. Driven by rising demand within the defense sector, the military has increased orders from hundreds of new technology companies supplying radar systems, communication technologies, and anti-drone solutions.
Keren Uziel, a senior analyst for the Middle East and Africa at the Economist Intelligence Unit (EIU), told Al Jazeera that while employment and wage growth have contributed to the economic recovery, exports remain the primary driver. Israel—and the multinational corporations operating there—possess significant competitive advantages in global markets, particularly in fields such as cybersecurity and artificial intelligence. According to Uziel, the rising international demand for Israeli technology products and services has led to an increase in foreign direct investment and capital raising for new ventures. This has invigorated the capital market, boosted asset values, and increased government revenue.
